Mitie profits fall as outsourcing giant says scale of restructuring needed was ‘far more significant’ than expected
Outsourcing giant Mitie this morning announced a six per cent fall in adjusted operating profit for the year amid "a challenging and, at times, difficult market".
Mitie's chairman said "wholesale sector recalibration" is needed for the economics of facilities management to stay sustainable, but added that this is already in the works.
Derek Mapp said the magnitude of the internal restructuring needed at the company was "far more significant" than originally expected, but Mitie has weathered the storm from the overhaul.
Shares rose more than three per cent in early trading.
Read more: Mitie chief: Sector must boost reserves to absorb Carillion-style “knocks”
The figures
The company announced a six per cent fall in adjusted operating profit before other items to £77.1m for the year ended 31 March 2018, with reported revenue up 3.8 per cent to £2.2bn.
The board is recommending a final dividend of 2.67p, keeping the full-year dividend steady at 4p.
Why it's interesting
The company said its transformation programme remains on track and is "progressing well" with a commercial reorganisation and financial overhaul now complete. The cost of those changes for the year was £35m.
It acknowledged that the scale of the internal restructuring and the number of things needing fixing was "far more significant" than earlier expected. But on the brighter side, the company thinks much of the heavy-lifting has been carried out.
Mitie expects modest top-line growth next year, and said it remains committed to medium-term margin improvement to around 4.5 per cent to 5.5 per cent in the future.
What the company said
Mitie chairman Derek Mapp said:
Outsourcing and, more specifically, facilities management, is a relatively new industry where the early benefits derived from economies of scale and expertise have now, largely, been eroded away. Third, fourth and even fifth generation contracts have resulted in low margins for providers and few cost give-aways for customers.
The collapse of Carillion, the challenges faced by almost every other industry participant, as well as the failure of many other individual contracts to be delivered on budget, on time or at the quality required, show that wholesale sector recalibration is needed for the economics of FM to continue to be sustainable.
We are pleased to see that this is already happening; as we engage with government, prospective customers and existing clients, the focus is moving subtly away from just cost and towards value.
Read more: Mitie says Carillion collapse raises fundamental questions on outsourcing